Small traders look for nifty ways to avoid GST net

The shift to the Goods and Services Tax regime (GST) has caused quite a stir among small-sized businesses that are put off by the compliance burden under the scheme.

Those most impacted seem to be traders selling small-ticket goods. Says a dealer of consumer items on condition of anonymity: “Non-availability of full input tax credit on stocks in transition and the need to file several returns every month — details of outward supplies, details of inward supplies and monthly returns — is a big dampener for small traders.

“Since most of these businesses are run as a sole proprietorship, traders don’t have enough time to dedicate to these regulatory requirements all on their own.”

To ease the compliance burden, those with a turnover of over ₹75 lakh have tried to split their business or show reduced turnover to make themselves eligible for the composition scheme.

Under this scheme, a registered taxpayer whose aggregate turnover does not exceed ₹75 lakh in the preceding financial year can pay a CGST (Central GST) of not more than 1 per cent of turnover in case of manufacturing sector, 2.5 per cent for restaurant sector and 0.5 per cent for other suppliers.

It is enough for a tax payer under this scheme to file one return each quarter.

Since scheme holders are not required to pay taxes at regular rates, they need not issue a tax invoice. A bill of supply would suffice. These factors make opting for the scheme more convenient, as fewer details are required.

Secondly, those in the unorganised sector who deal predominantly with cash and don’t have proper records of inventory or sales, or haven’t complied with tax laws earlier, have also been pushed to a corner.

Moving into the GST net may invite scrutiny of their earlier activities. Such businesses have made attempts to start with a clean slate by winding up their earlier establishments and setting up afresh from July 1.

But the moves to work around the GST in these cases may not be a foolproof solution to their problems. Splitting the business to show a turnover below ₹75 lakh or writing down the turnover may not be easy, feels Archit Gupta, founder and CEO, ClearTax.

“Every business has a PAN attached and every GSTIN is linked to the PAN. So, if a taxable person has different businesses under the same PAN, all businesses will have to fall under the scheme.

“Besides, many of these businesses would be doing some form of business return filing, where the actual turnover figure could be available.”

Shutting down the business to start a new one from July 1 may also be easier said than done. It would mean complete liquidation of stocks at possibly very cheap prices, which may bring heavy losses.

Suppliers in the unorganised sector may have little choice but to move to GST, as companies may not prefer to source from unregistered players any longer.

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